Past Is Prologue: New Secular Bull Or A Repeat Of The 70’s

Last Monday, I discussed why you should be worried about corrections due to the damage inflicted upon your investment capital and the time required to “get back to even.” Not surprisingly, as usual when I discuss such heresy as actually managing your money, I received several emails stating we are in a new “secular bull market” and “indexing” is now the best approach.

It is an interesting point and one that has been prognosticated by several Wall Street analysts in recent months. However, again not surprisingly, I disagree. Let me explain.

A secular market refers to a market trend that persists over decades. The chart below shows the history of secular bull market periods going back to 1871 using data from Dr. Robert Shiller. One thing you will notice is that secular bull markets tend to begin with valuations below 10x earnings and end at 23-25x earnings. (Over the long-term valuations do matter.)


The chart below compares the last secular “bear” market that ran from 1963 to 1982 as compared the current cycle. Notice the chart for this previous period stops in 1973. I will show you the rest of this period in a moment.


What is important, besides the very similar pattern between the two periods, is the breakout in 1969 did not start a new bull market. It was a setup for the next major decline.

“Okay, but the breakout in 1972 was surely the beginning of the new secular bull market – right?”

Not so fast.